The book is organized around three main themes, Enterprise systems, E-business and Controls and how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes:
Enterprise Systems - integrate the business processes of an organization from functional areas (such as marketing and sales, cash collections, human resources, etc) to improve efficiency, coordination, and decision making
- Enterprise Resource Planning Systems (ERP)- software packages that can be used for the core systems necessary to support enterprise systems (p. 5). Representations of business processes where information is stored one time, in a disaggregated format in which it can be retrieved by many different users for use in making decisions.
-Some examples of vendors offering ERP software are SAP, Oracle, PeopleSoft, J.D. Edwards, and Sage Group. E-Business - the use of electronic networks to develop, manage, and improve business processes (including the Internet and electronic data interchange) Controls - a system of integrated elements - people, structure, processes, and procedures - acting together to provide reasonable assurance that an organization achieves its business process goals (for example, they ensure that an organization's inventory is not stolen)
-Controls can range from requiring approval signatures, to having a brinks truck picking up cash deposits.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business enviornonments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challanges and opportunites. Below these are described:
Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:
Technology - Technology plays an important part in planning and managing business operations in today's society. In order to completely understand accounting information systems, a knowledge of technology is necessary. It goes without saying that technology ultimately provides the foundation for business operations and accounting information systems.
Databases - Databases can be private or public and can vary based on the quantity and type of data they provide and by the methods used in retrieving data from them. It is important for accountants to be able to pull information from databases to perform analysis on the information and prepare that information for management decision making.
Reporting - It is important for an accountant to know what outputs are required when designing reports from information systems. Reports tend to support management decisions and fulfill reporting obligations.
Control- the means by which we make sure the intended actually happens (p.10,11)
Business Operations - Examples include hiring employees, purchasing inventory, and collecting cash from customers. Accounting information systems operate with these business operations whereas AIS inputs are prepared by operating departments and outputs are often used to manage operations.
Events Processing - Examples include sales and purchases events that occur as organizations carry out their business operations. It is important that data is collected about these events and recorded to monitor business operations.
Managment Decision Making- Decisions or choices such as what products to sell, which markets to sell them in, what organizational structure to use, and how to direct and motivate employees. -- Can be broken down into 3 step process: 1: Intelligence 2: Design 3: Choice (p.27) -- Information is more useful if it recgonizes the personal management styles and prefrences of the decision maker (p.12)
Systems Development and Operation- Designing, implementing, and effectively operating information systems (p12.)
Communications- the effective exchange of ideas and information between individuals. In order for accountants to express the results of their examination or inquiry effectively to management, they must have strong written and verbal communication skills.
Accounting and Auditing Principles- procedures established for accountants to follow concerning accounting information that is subjected to an audit. In order for an accountant to design and operate the system containing this accounting information, they must understand and recognize proper accounting procedures.
Narrow View of AIS:
Here we focus on the accounting information system itself (the database, the ERP system, the information system)
"The objective of an AIS are to record valid transactions, properly classify those transactions, record the transactions at their proper values, record the transactions in the proper accounting period, and properly present the transactions and related information in the financial statements (although the actual preparation of the financial statements may be manual) of the organization"(Becker).
Systems and Subsystems: (p.13)
-System - set of interdependent elements that together accomplish specific objectives. Must have organization, interrelationships, integration, and central objectives.
Addition: An AIS is a type of management system and partly a knowledge system; it may also be parly a transaction processing system and partly a knowledge system. A well-designed AIS will create an audit trail for accounting transactions. A system's basic objectives depend on its type, i.e. car manufacturer may have an objective to make the most gas efficient vehicles on the market.
-Subsystem - The interrelated parts of a system that have come together/intergrated as a single system; a part a system that can be looked at a system itself. Information Systems Model:
A diagram of a systems process, input, outputs, users and storage units. Management Information System: Man made system that is made up of an integrated set of computer-based and manual components which collect, store, and manage data to provide output information to users. Accounting Information System: a specialized subsystem of the information system that collects, processes, and reports information related to the financial aspects of business events. (p 15)
Logical Model of a Business Process:
(p.17-18) There are three logical components of the business process:
1) Information process - the portion of the overal information system related to a particular system.
2) Operations process - a man-made system consisting of the people, equipment organization, policies, and procedures whose objective is to accomplish the work of the organization. Typically include production, personnel, marketing and sales, accounting, finance, warehousing, and distribution
3) Managment process - a man-made system consisting of people, authority, organization, policies and procedures whose objective is to plan and control the operations of the organization.
Management Uses of Information:
1. To monitor and keep operations running smoothly - the use of information generated and processed by the IS to ensure that events are operating correctly; ie Managers use the information to make sure enough inventory is being produced each day to meet expected demand = keeping the "ship" on course. (p21)
2. To achieve satisfactory results for both customers and shareholders - The information generated by the IS can measure several things such as the attainment of goals regarding product quality, timely deliveres, cash flow, operating income, etc. (p21)
3. To recognize and adapt to changing environmental trends- The Information from the IS helps managers to answer key questions such as: the time it takes to introduce a new product compared to the time it take competitors or the cost to manufacture a unit compared to the competition. (p21)
Data vs Information:
Data- facts or figures in raw form. Data represent the measurements or observations of objects and events. To become useful to a decision maker, data must be transformed into information.
Information- data presented in a from that is useful in decision making (p22). It has value to the decision maker because it reduces uncertainty and increased knowledge about a particular area of concern.
Mirrors and montiors
Support managment activities
Recognize and Adapt
Qualities of Information:
Statement of Financial Accounting Concepts No 2: Qualtitative Characteristics of Accounting Information
Understandability - Information must be presented in proper language that allows the decision maker to easily gather information and make informed decisions. Acronyms, slang or codes are usually difficult to understand by multiple decision makers.
Timeliness - A decision maker must receive information prior to the deadline of taking action. If information is received after the deadline, the information is no longer relevant or significant. All pertinent information needs to be available when needed and not after the fact.
Predictive Value & Feedback Value-Information systems are designed to provide appropriate performance measurement data to assess the past, present, and future financial condition of the organization.
Verifiability- being able to compare measurement of data using independent methods.
Neutrality (freedom from Bias) - Information must be impartial and not favored more toward one side or another.
Comparability-representing data like another to establish similarities.
Consistency-In accordance to principles, information should be recorded the same within the current period and as the preceding period.
Accuracy - Information should reflect actual events and not material mistatements. For example, accounts receivable balances and accounts payable balances should represent the correct balance and should differ significantly.
Completeness - All relevant events that should have been included in the information were included, and no relevant transactions were left out by either neglect or by mistake.----
Management Decision Making:
-Decision making is the application of choices among available options. It is a manager's method of resolving issues within the organization.
Herbert Simon - 3 step Process
1. Intelligence- ability to determine when a decision needs to be made 2. Design- develop and evaluate options available 3. Choice- determine the most appropriate procedure among alternatives in which objectives may be obtained.
Operational Management Requirements
Tactical Management Requirements
Strategic Management Requirements
Vertical information flows- Data captured at the operations and business event processing level. They service a multilevel management foundation.
Horizontal information flows-flows that relate to specific business events. The information is narrow in scope, detailed, accurate, and comes largely from within the orgainization.
Structured vs Unstructured- Structure is the degree of repetition and routine in the decision. Structured decisions are those for which all three decision phases (intelligence, design, and choice) are relatively routine and repetitive. Unstructured decisions are those for which none of the decision phases are routine or repetive.
Main Themes:
The book is organized around three main themes, Enterprise systems, E-business and Controls and how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes:Enterprise Systems - integrate the business processes of an organization from functional areas (such as marketing and sales, cash collections, human resources, etc) to improve efficiency, coordination, and decision making
- Enterprise Resource Planning Systems (ERP)- software packages that can be used for the core systems necessary to support enterprise systems (p. 5). Representations of business processes where information is stored one time, in a disaggregated format in which it can be retrieved by many different users for use in making decisions.
-Some examples of vendors offering ERP software are SAP, Oracle, PeopleSoft, J.D. Edwards, and Sage Group.
E-Business - the use of electronic networks to develop, manage, and improve business processes (including the Internet and electronic data interchange)
Controls - a system of integrated elements - people, structure, processes, and procedures - acting together to provide reasonable assurance that an organization achieves its business process goals (for example, they ensure that an organization's inventory is not stolen)
-Controls can range from requiring approval signatures, to having a brinks truck picking up cash deposits.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business enviornonments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challanges and opportunites. Below these are described:Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:Narrow View of AIS:
Here we focus on the accounting information system itself (the database, the ERP system, the information system)"The objective of an AIS are to record valid transactions, properly classify those transactions, record the transactions at their proper values, record the transactions in the proper accounting period, and properly present the transactions and related information in the financial statements (although the actual preparation of the financial statements may be manual) of the organization"(Becker).
Systems and Subsystems: (p.13)
-System - set of interdependent elements that together accomplish specific objectives. Must have organization, interrelationships, integration, and central objectives.
Addition: An AIS is a type of management system and partly a knowledge system; it may also be parly a transaction processing system and partly a knowledge system. A well-designed AIS will create an audit trail for accounting transactions.
A system's basic objectives depend on its type, i.e. car manufacturer may have an objective to make the most gas efficient vehicles on the market.
-Subsystem - The interrelated parts of a system that have come together/intergrated as a single system; a part a system that can be looked at a system itself.
Information Systems Model:
A diagram of a systems process, input, outputs, users and storage units.
Management Information System: Man made system that is made up of an integrated set of computer-based and manual components which collect, store, and manage data to provide output information to users.
Accounting Information System: a specialized subsystem of the information system that collects, processes, and reports information related to the financial aspects of business events. (p 15)
Logical Model of a Business Process:
(p.17-18) There are three logical components of the business process:1) Information process - the portion of the overal information system related to a particular system.
2) Operations process - a man-made system consisting of the people, equipment organization, policies, and procedures whose objective is to accomplish the work of the organization. Typically include production, personnel, marketing and sales, accounting, finance, warehousing, and distribution
3) Managment process - a man-made system consisting of people, authority, organization, policies and procedures whose objective is to plan and control the operations of the organization.
Management Uses of Information:
1. To monitor and keep operations running smoothly - the use of information generated and processed by the IS to ensure that events are operating correctly; ie Managers use the information to make sure enough inventory is being produced each day to meet expected demand = keeping the "ship" on course. (p21)2. To achieve satisfactory results for both customers and shareholders - The information generated by the IS can measure several things such as the attainment of goals regarding product quality, timely deliveres, cash flow, operating income, etc. (p21)
3. To recognize and adapt to changing environmental trends- The Information from the IS helps managers to answer key questions such as: the time it takes to introduce a new product compared to the time it take competitors or the cost to manufacture a unit compared to the competition. (p21)
Data vs Information:
Data- facts or figures in raw form. Data represent the measurements or observations of objects and events. To become useful to a decision maker, data must be transformed into information.Information- data presented in a from that is useful in decision making (p22). It has value to the decision maker because it reduces uncertainty and increased knowledge about a particular area of concern.
Mirrors and montiors
Support managment activities
Recognize and Adapt
Qualities of Information:
Statement of Financial Accounting Concepts No 2: Qualtitative Characteristics of Accounting Information
Management Decision Making:
-Decision making is the application of choices among available options. It is a manager's method of resolving issues within the organization.- Herbert Simon - 3 step Process
1. Intelligence- ability to determine when a decision needs to be made2. Design- develop and evaluate options available
3. Choice- determine the most appropriate procedure among alternatives in which objectives may be obtained.
- Operational Management Requirements
- Tactical Management Requirements
- Strategic Management Requirements
Vertical information flows- Data captured at the operations and business event processing level. They service a multilevel management foundation.Horizontal information flows-flows that relate to specific business events. The information is narrow in scope, detailed, accurate, and comes largely from within the orgainization.
Structured vs Unstructured- Structure is the degree of repetition and routine in the decision. Structured decisions are those for which all three decision phases (intelligence, design, and choice) are relatively routine and repetitive. Unstructured decisions are those for which none of the decision phases are routine or repetive.